CCL stock. Don't load the (401k) boat

[MrChuckFL]

The cruise line industry has experienced a remarkable resurgence, boasting full ships and record-breaking revenue. However, a closer examination reveals a series of concerns that cast doubt on the sustainability of this apparent success. The expiration of COVID-19 credits, the manipulation of pricing strategies, the looming threat of inflation and recession, the burden of debt incurred during the pandemic, and the smoke and mirrors obscuring the true state of the industry are why I think taking a bearish stance on cruise line stocks might be justified.

Expiring Credits: A Temporary Boost to Revenue

The full ships and record revenue reported by cruise lines may be largely attributed to the expiration of COVID-19 credits issued during the pandemic. Cruise lines were aware of these credits and cleverly raised their rates, knowing that customers would be willing to pay a little extra rather than lose their credits. However, as these credits approach their expiration dates, a decline in customer demand is expected, leading to reduced occupancy and revenue levels.

Manipulative Pricing Strategies

Cruise lines took advantage of the existence of these expiring credits to manipulate their pricing strategies. By raising rates, they were able to capitalize on customers' willingness to pay a premium to utilize their credits. This pricing maneuver allowed the industry to present an image of full ships and record-breaking revenue. However, once these credits are no longer in play, cruise lines may struggle to maintain these inflated pricing levels, leading to potential challenges in attracting price-conscious customers.

Impending Inflation and Recessionary Pressures

The cruise industry faces the looming threat of inflation and recession, which could impact its growth prospects. Inflation erodes purchasing power and raises operating costs, including fuel, labor, and maintenance expenses for cruise lines. Additionally, during economic recessions, consumer discretionary spending tends to contract, and vacations like cruises are often one of the first areas where individuals cut back. These inflationary and recessionary pressures could significantly impact the industry's occupancy rates and revenue.

Debt Burden: A Rock and a Hard Place

Cruise lines incurred substantial debt to survive the COVID-19 pandemic when ships were operating with skeleton crews or remaining idle. While this debt provided a lifeline during the crisis, it has become a burden in the post-pandemic recovery. Cruise lines must now service this debt, diverting a significant portion of their revenue to repayments. This leaves them in a challenging position, unable to substantially lower fares to attract price-conscious customers while also fulfilling their debt obligations.

Smoke and Mirrors: The Illusion of Success

The cruise industry's full ships and record-breaking revenue may be a product of smoke and mirrors. The expiration of credits, manipulative pricing strategies, and debt burden create a distorted image of success. Once the temporary factors driving revenue disappear, the true challenges facing the industry could be unmasked, potentially leading to a decline in occupancy rates and revenue.

While cruise line stocks have shown a resurgence and record-breaking revenue in recent months, a bearish perspective suggests that caution is warranted. The expiration of COVID-19 credits, manipulative pricing strategies, impending inflation and recessionary pressures, the burden of debt, and the smoke and mirrors surrounding industry performance all raise valid concerns about the future of cruise line stocks.

For these reasons, I am bearish on $CCL $RCL $NCLH and don't see sustained growth in the cruise line sector heading into next year. 

Edited June 28, 2023 by MrChuckFL
hit post by accident

[tidecat]

Is this an article from late 2021 or early 2022? There is no need to cut fares right now. Ships are full, and demand is stronger than it has ever been. The credits also didn't drive revenue; they actually were a reduction in revenue.

 

The only real question is whether growth in revenue can outpace growth in costs (inflation). But fortunately inflation seems to be cooling - most of the damage was done between mid-2020 and mid-2022 (it will literally take decades of inflation being around 1% to make up for the roughly 20% of inflation between 2020 and 2022 just to get back to a 2% average).

[787cruiser]

I have to agree with tidecat on this one, this outlook does not seem current.

[ano]

Carnival stock is currently the same price as it was in March of 1997. Just saying.

[Clearmax]

Exactly, plus they have 2.2 billion from credit card processing that will go on the books in 24 and 25. They will use it to pay down debt, I have 43k shares of ccl and 20k shares of nclh and have made hundreds of thousands. It’s probably best to not listen to the members on this forum about investing.

[firefly333]

I too am wondering when the article was written. FCCs from covid cruises I would have thought was 99% used up or expired. Cant be many FCCs oit there that arent expired and the main reason for the higher prices. ..the author mentions the FCCs over and over, at least 4 times. 

 

A year ago maybe this article was relevant.